The Pakistan Credit Rating Agency Limited
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Usama Zubair

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PACRA Maintains Entity Ratings of PAIR Investment Company Limited

Rating Type Entity
(14-Dec-19 )
(14-Jun-19 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Development Financial Institutions (DFIs) largely operate on turf common to commercial banks. Limited depth in participation towards development of long gestation projects, low funding base, and high competition become their key challenges. Joint Venture Financial Institutions are DFIs jointly conceived by the two sovereigns with primary objective of identifying and nurturing multiple development initiatives. Their ratings are mainly characterized by sovereign ownership, adequate standards of governance, and relatively conservative risk appetite.
The ratings assigned takes into account PAIR's ability to sustain its position among peers. The Company’s lending portfolio remained largely same, during 9MCY19. Asset quality is deteriorated by addition of a major clients into ‘non-performing category’; though related provisioning has been created. This along with realised loss on sale of securities reduced the profitability. Management has created an adequate mix of sectors in advances, though client concentration remains high. The capital and treasury division’s primary focus of investment was Government securities; minor portion vested in Equities, Sukuk & TFCs and funds. During the year, investment book increased providing good cushion to liquidity.The company has taken sizable exposure into government securities, wherein market risk dominates. Borrowing from financial institution remains the primary source whereas COI's minuscule part is funding base . Liquidity position and capitalization indicators remained stable. Going forward, PAIR is focusing on strengthening the existing relationships. Management is cognizant of the fact that they need to find new niche for growth and development, hence new avenues like SME segment, are being explored. However, nothing material is on the horizon, over the medium term. The MD/CEO is not in Pakistan, though taking care of the company’s affairs from abroad.
The ratings are dependent on the company’s ability to sustain its financial profile while managing the associated risks encompassing active recovery of infected portfolio. The concentration level in funding and advances needs to be pro-actively managed. Consistent efforts by the management to add new sectors/names to further diversify their portfolio, increase in provisioning expense and subsequent effect on profitability and at the same time stability at MD/CEO's position remains critical for the ratings.

About the Entity
PAIR Investment Company Limited (PAIR) was incorporated in January 2007. The company is a joint venture between Pakistan and Iran, having equal ownership stake. The Ministry of Finance (MoF) manages the ownership interests of the Government of Pakistan, while Iran Foreign Investment Company (IFIC) represents the Government of Iran. PAIR's business activities can be divided into fund based and non-fund based.
The overall control of the company vests with six-member board of directors including the MD/CEO and Chairman. PAIR’s board of directors comprises three directors representing Pakistan and three directors representing Iran. All the team members carry vast experience from diversified sectors. Mr. Hamid Eftekhari Kondelaji, MD/CEO since Aug’17, has been nominated by IFIC and confirmed by the Ministry of Finance. Since Mr. Hamid was not granted work permit, he is operating from abroad. To resolve the issue Mr. Hamid's replacement is nominated by IFIC. Incoming MD/CEO will join in on completion of the relevant regulatory requirement.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.